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ACCC warns franchisors: Don't make promises you can't keep

Published on Thu, 12/07/2012, 11:45:37

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By Claire Reilly

The franchising industry has again come under scrutiny from the Australian Competition and Consumer Commission, with the regulator issuing a warning to franchisors not to mislead potential franchisees on the incomes they should expect from doing business.

“Franchisors must have a reasonable basis for making all income representations to potential franchisees,” said acting ACCC chairman Michael Schaper. “The ACCC is particularly concerned by franchisors which appear to target people from non-English speaking backgrounds who may not fully understand the agreements they are entering into.

“The ACCC strongly encourages anyone who is thinking about buying a franchise to talk to other franchisees – ask if they are earning as much as they expected,” he added. “You should also discuss your franchise agreement with a lawyer and an accountant. If you don’t understand it, don’t sign it.”
Today’s warning was issued after the ACCC confirmed it had received a number of complaints from “franchisees who allege that they were promised a minimum ‘guaranteed’ income but then derived little or no income from their franchise”.

According to the commission, franchisors that mislead their franchisees regarding the potential incomes generated by their business can be subject to litigation and penalties of up to $1.1 million.

“While most franchisors do the right thing by their franchisees, there appears to be a growing number of franchisors who are making promises which they cannot keep.”

The ACCC also released a number of tips for buying a franchise:

Beware of promises that you will earn a guaranteed income, as well as ‘get rich quick’ schemes that claim you can make large amounts of money with little effort.

If the franchisor makes verbal claims, ask them to confirm those claims in writing.

Get advice from a lawyer and accountant before entering into a franchising agreement or handing over any money.

Speak to existing and past franchisees. Their contact details should be in the disclosure document that the franchisor is required to give you before you enter into your agreement.

Know your cooling off rights – you can terminate an agreement within seven days of entering into it or making any payment under it, whichever occurs earlier.